Barry Slifstein - VP, IR Frank Sullivan - Chairman and CEO Rusty Gordon - CFO

John McNulty - Credit Suisse Rosemarie Morbelli - Gabelli & Company Matt Gingrich - Morgan Stanley Jeff Zekauskas - JPMorgan Kevin McCarthy - Bank of America Merrill Lynch Mike Ritzenthaler - Piper Jaffray Mehul Dalia - Robert W. Baird Ivan Marcuse - KeyBanc Capital Markets Christopher Perrella - Bloomberg Jason Rodgers - Great Lakes Review Kevin Hocevar - Northcoast Research Richard O'Reilly - Revere Associates

Welcome to the RPM International’s Conference Call for the Fiscal 2015 Third Quarter. Today’s call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM’s reports filed with the SEC. During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. Following today's presentation, there will be a question-and-answer session. [Operator Instructions] Please note that only financial analysts will be permitted to ask questions. At this time, I would like to turn the call over to RPM’s Chairman and CEO, Mr. Frank Sullivan for opening remarks. Please go ahead, sir.

Thank you, Sylvia. Good morning and welcome to the RPM International Investor call for our 2015 third quarter for the period ended February 28, 2015. On the call with me this morning are Rusty Gordon, RPM’s Vice President and Chief Financial Officer and Barry Slifstein, our Vice President, Investor Relations and Planning. On our call today, we'll discuss our third quarter results, including some detail provided by Barry, comments on the outlook for the balance of our 2015 fiscal year and take your questions. To remind everyone, the plan of reorganization for Specialty Products Holdco was confirmed by the courts on December 10 and the initial $450 million payment essentially closing this transaction was completed on December 22. The results of operations of SPHC companies have been reconsolidated into RPM effective January 1, 2015. Once again, our deliberate strategic balance between consumer and industrial markets and growth balance between internal investment and acquisitions has delivered for RPM. You can't avoid talking about foreign currency and the strengthening of U.S. dollar related to our third quarter results. We've worked hard over the last decade to expand our breadth geographically and at this moment in time, it's working against us as we now have roughly 40% of all of our sales outside of the United States. The negative impact from foreign currency is extreme not only because of the dramatic movement in currencies but also because of how quickly it occurred. For instance in Europe, which represents about 20% of our consolidated sales and by far our largest region outside of the U.S., in standard rates we were down 16% in revenues year-over-year, but in local currencies we're roughly flat, a major accomplishment given the comparison to double-digit sales growth in the prior year throughout Europe. In addition, some of our overseas businesses purchased raw materials denominated in Dollars and sell their products in local currencies causing a hit to gross margins. Some of our smaller niche players, particularly those serving the European market have struggled because of the slowdown in global demand. These businesses although smaller in size tend to be more international are generally higher in margin and when sales are off has a noticeable impact on our margin mix. These include our florescent pigment food coating, water proofing, restoration services and nail polish businesses. Our core consumer segment is solid with strong organic growth in the quarter despite some challenging weather, especially in the North East and Midwest as we had another year of extended winter weather. We recognize that residential housing market has had its starts and stops, but overall remain optimistic about the trend especially in home values, consumer confidence and discretionary spending, all of which bode well for our great branded consumer products and higher ticket home remodeling and redecoration products. Also in our consumer segment our innovation pipeline continues to be strong. Our business is serving commercial construction, continue to plough forward with slow but steady momentum. Calendar year 2015 is projected to be the first year in roughly eight years where all major sectors of the U.S. new construction market will be in positive territory. Our Tremco sealants; stone hard flooring and Euclid Chemical businesses lead the way in this sector. Our Euclid tough strand microfiber products, which we've commented on in the past continue to gain acceptance in North America and globally and in our newly opened second manufacturing facility in Atlanta, Georgia, we're already nearly out of capacity. While we're facing many challenges, principally the troubled economic conditions in Europe and the dramatic rise in the value of the U.S. dollar our deliberate strategic balance delivered a strong quarter with sales up 9.6% and consolidated EBIT adjusted for approximately $8.8 million of onetime SPHC reconsolidation fees and expenses in the quarter, EBIT on that basis is up 15.6%. And these strong results include the negative impact of FX on the quarter without which we would have shown even stronger performance and results. I would now like to turn the call over the Barry Slifstein to provide more detail on our third quarter.

Thanks Frank and good morning everyone. Thank you for joining us on today's call. During the quarter, the company took a non-cash net charge of $83.5 million related to the possible repatriation of overseas earnings to fund the remaining obligations in the SPHC settlement. I will therefore review the results of operations for our fiscal 2015 third quarter on an as adjusted basis excluding the $83.5 million non-cash charge and then cover some February 28, 2015 balance sheet and cash flow items. I'll then turn the call over to Rusty, who will discuss the outlook for the balance of fiscal 2015. Third quarter consolidated net sales of $946.4 million increased 9.6% from last year. Organic sales increased 6.7%. Acquisition growth added an additional 8.5% and foreign currency translation reduced sales by 5.6%. Industrial segment sales increased 10.6% year-over-year to $620.0 million. Organic growth increased 5.5%. Acquisition growth added an additional 12.4% and foreign currency translation reduced sales by 7.3%. Consumer segment sales increased 7.8% to $326.4 million. Organic growth increased 9.1%. Acquisition growth added an additional 1.2% and foreign currency translation reduced sales by 2.5%. Our consolidated gross profit increased 6.1% by $379.7 million from $358 million last year. As a percent of net sales, gross profit decreased from 41.5% last year to 40.1% this year. Negatively impacting gross profit was foreign currency, unfavorable product mix and $5 million in stepped-up inventory cost at SPHC. Consolidated SG&A increased 7.4% to $346.2 million from $322.2 million last year and as a percent of net sales decreased to 36.6% from 37.3% last year. Nearly all of the increase was due to consolidating the SPHC businesses during the third quarter. Additionally included in SG&A was $3.8 million of non-recurring expenses related to the SPHC settlement. Consolidated earnings before interest and taxes, EBIT, decreased 7.9% to $34.2 million from $37.2 million last year and included the non-recurring SPHC expenses related to the settlement and stepped-up inventory expense. Excluding these two items, consolidated EBIT was $43 million and increased 15.6% over last year. At the industrial segment, EBIT decreased 19.6% to $18.2 million including $5 million in SPHC’s stepped-up inventory expense compared to $22.7 million last year. Consumer segment EBIT increased 13.9% to $35 million compared to $30.8 million last year. Corporate other expenses of $19.1 million were above last year’s amount of $16.3 million primarily due to the $3.8 million non-recurring SPHC settlement expenses mentioned in SG&A. Interest expense increased from $19.7 million last year to $21.5 million this year, primarily due to the $450 million payment to the 524(g) trust in December 2014, which was funded from evolving credit and account receivable securitization facility. Investment income of $7.7 million for the quarter was essentially flat to last year. Income taxes for the third quarter decreased from an effective tax rate of 32.9% last year to an as-adjusted tax benefit this year. The change is primarily due to the reversal of valuation allowances, favorable adjustments to tax contingency reserves and the overall impact of such items relative to the seasonally low actual quarter income. We're forecasting that on an as-adjusted basis, the full year fiscal 2015 effective tax rate will be in line with last year’s full year tax rate. Net income increased 61.2% to $26.2 million from $16.2 million last year. Diluted EPS of $0.20 per share was $0.08 per share or 67.7% above last year's EPS of $0.12 per share. Foreign currency negatively impacted EPS by approximately $0.05 per share and SPHC was dilutive to EPS by $0.01 per share. And now, a quick look at the cash flows and balance sheet. Cash provided by operating activities during the first nine months of the year was $24.1 million versus $25.9 million for the same period last year. Last year’s amount included the GSA payments approximating $45 million after tax. This year’s amount reflects higher working capital needs to fund higher sales, cash payments for professional fees related to the final settlement of SPHC and payments from accrued compensation and benefits and other accrued liabilities. Depreciation and amortization expense was $71.8 million compared to $67.3 million last year. CapEx of $47.3 million this year compared to $54.3 million last year. Our accounts receivable DSO was 73 days this year compared to 70 days last year. Days of inventory increased to 115 days this year compared to 113 days last year. Finally, a few comments on our capital structure and overall liquidity. During the quarter, the company repurchased 550,000 shares in the open market for approximately $26 million. As of February 28, 2015, total debt was $1.87 billion compared to last year at $1.39 billion. The increase was principally due to the $450 million trust payment made in December 2014 using funds from our revolving credit facility. Our net debt-to-capital ratio was 57.2% at February 28, 2015 compared to 47.3% last year. Our long-term liquidity at February 28, 2015, was $648 million with $220 million in cash and $428 million available through our bank revolver and AR securitization facilities. On May 9, 2014, we replaced our existing $150 million accounts receivable securitization facility with a three-year $200 million accounts receivable securitization facility that expires on May 8, 2017. On December 5, 2014, we replaced our existing $600 million revolving credit facility with a new five-year $800 million facility, which can be expanded upon request to $1 billion. The new facility contains customary covenants including a leverage ratio not to exceed 65% and an interest coverage ratio not to be below $3.5 billion to $1 billion. With that, I'll turn the call over to Rusty.

Thank you, Barry. I would like to briefly cover our full-year fiscal year 2015 outlook. For the fourth quarter of our fiscal year, we expect our consumer segment to benefit from continued innovation and consistent growth in consumer DIY spending. In the industrial segment, our European businesses continue to be challenged with a sluggish economy with a strong dollar negatively impacting already weak results and extremely difficult comparisons to the prior year when sales were growing by double digits. Our RPM two operating segments will also face difficult prior year comparisons and most likely continue to suffer from unfavorable product mix. We are also beginning to see a slowdown in topline sales in our businesses serving the energy sector as production is slowing down with the lower cost of oil. However, we do expect continued positive momentum from our other U.S. based industrial businesses, especially those serving the U.S. commercial construction markets. Based on these factors along with an anticipated benefit from the SPHC companies in the fourth quarter, we’re guiding to the upper end of our current range of $2.25 to $2.30 per share on an as adjusted basis for the full fiscal 2015 year. From a longer term perspective, we’re optimistic given the return of our SPHC businesses and the elimination of their asbestos liability. We can now accelerate growth investments in our businesses and more aggressively return capital to shareholders when appropriate. That concludes our prepared remarks and we will now be happy to answer your questions.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question comes from John McNulty from Credit Suisse.

Good morning, John.

Yeah, good morning thanks for taking my questions. So I guess when we look at the full year guidance for 2015 and kind of look at the puts and takes, it’s obvious that FX has worked against you and you’re guiding to coming in at the high end of the range. So I guess I’m wondering what’s change in the rest of the businesses or what’s giving you the confidence to coming at the higher end of the range despite the FX headwinds and then I guess tied to that, how does that make you think about what you’ve put out there for the 2016 guide as well?

So, I think that we’re continuing to see a good performance out of our North American based construction chemical businesses and consumer continues to be strong. SPHC is delivering both because it’s a return of very low run businesses. And also because it’s basically U.S. based business and so that’s where we’re seeing the strongest performance economically. And those are really the reason why we’re comfortable with continuing to reinforce our guidance and believe will be at the high end of that for the quarter. It’s hard to say where our 2016 guidance, certainly we’ll give you an update as we normally would and some detail about 2016 when we release our 2015 fourth quarter and full year results in July. And I say that, because it depends what the dollar does. We will be suffering through this FX hit assuming the dollar kind of stabilizes where it is into or through our second quarter. And then unless there is a further deterioration, which we’re not anticipating that negative drag will pretty much dissipate in the second half of next year.

Okay fair enough. And then a question with regard to the consumer business. Clearly weather was big of an issue as it was maybe last year, but it still looked like it probably nicked the quarter a little bit. I guess how much business can you tell was maybe pushed out to fiscal 4Q from 3Q just owing to the weather issues?

I don’t think that we had a big impact on weather. We had a pretty good finish to the quarter in our consumer segment. I think the weather actually negatively impacted our industrial businesses more. We’re seeing good revenue performance finally at Tremco Roofing. Dryvit, which is a returned SPHC business, is also expected to show good growth. But a lot of our businesses like those two whose products are used on the exterior were negatively impacted, because of the deep and extended winter. So I think that’s also a reason for optimism as we get into the fourth quarter with those businesses maybe some slightly stronger performance out of our industrial sector.

Great. And then maybe just last question if I can, with regard to the buybacks that you did in the quarter, when I look back other than maybe a small period in 2009 in the rescission where I think you guys were just opportunistic about it. You haven't really bought this level stock back in 10 to 12 years, so I guess what's may be changed, or is this just a one-off? How should we be thinking about the ability for RPM to return cash to the shareholders in buybacks going forward?

So, obviously, it will be circumstantial for us. But I reflect back over the last decade where RPM's total shareholder return doubled the return of the S&P 500 and outperformed a very formidable peer group by about 34%. And that was despite the fact that before this settlement, we paid out $600 million in pretax dollars to this asbestos mess. And so, those were dollars that over that decade could have gone to greater investment or greater shareholder returns. And so, going forward, while we still have about $357 million, I believe it is $347.5 million of future obligations. That drag on our cash flow and the uncertainty of a major contingent liability is behind us. And I think you'll see us having opportunity circumstantially to be somewhat more aggressive in returning capital. Our priorities will continue to be internal investment in acquisitions, particularly where there at the right values, continuing to grow our dividend on an annual basis, which we've done for 41 straight years and has been an important part of that total shareholder return performance. But this is a long-winded answer to your question. We're excited that a 100% of the cash generated by our businesses will be able to be utilized by RPM for purposes that will benefit growth and our shareholders.

Great. Thanks very much for the time.

And our next question comes from Rosemarie Morbelli from Gabelli & Company.

Good morning, all.

Good morning.

Just following up on John's question on SPHC; is some part of the reason or all of the reason why you are looking at the high-end of the EPS? Is that what you expect to be the contribution for SPHC in the fourth quarter versus nothing when you first gave us the guidance?

Rosemarie, we had talked about SPHC contributing roughly $0.05 per share for 2015, and now that you see the fact that on after-tax, after one-time expenses, after all the crazy tax stuff, it actually hurt us in the quarter by $0.01. All of that $0.05 of positive accretion from SPHC we expect to realize in the fourth quarter. I would also remind you that we've reduced our original guidance, principally as a result of what's happening in Europe and the dramatic change in the value of the dollar; but in general, there are some pockets of problems geographically and with some of our businesses, but fortunately, there are more areas of strength. And so, we're comfortable about hitting that guidance that we provided.

So, if you already had that $0.05, which areas are doing better than you anticipated?

Barry, may be you can talk little bit about new products and/or business units or segments that are growing and expected to contribute to positive growth in sales and earnings in fourth quarter.

Absolutely, Rosemarie, we've seen a continued improvement in our businesses serving the commercial construction market here in the U.S. Euclid Chemical, their TUF-STRAND product continues to gain a lot of acceptance, our commercial sealants over Tremco. So that's nothing robust, but over the last several years, we've seen steady improvement quarter-over-quarter, year-over-year. Also our consumer segment, we continued to launch new products. We've been talking about Synta a lot this year. And they've issued several new products this spring that have already been loaded into some of the channels. They originally came out with a Restore 10x, which was a very thick product that covered in cracks, the nail holes, et cetera. They followed that up now with a 4x and a 2x. So when the deck is not as damaged, these products will do a great job. They also have combined NeverWet with Restore for better repelling of water on a deck. And also, issued a Restore Cool Touch product so that even if you have a dock surface it will stay cool to the touch if you barefoot. On the Tremco roofing side, roofing has gone through two very difficult years of restructuring, new management. We think we've seen the bottom with roofing and we're really excited about their growth prospects moving forward. They've launched a new product called AlphaGuard, which is polyurethane roof coating. The great thing is they've teamed up with the Tremco sealants group because it's manufactured by a sister company. So we're utilizing our plant capacity much better than before. If you have a damage asphalt base roof, this is a much better option than tearing off the asphalt and replacing it with asphalt. Tremco roofing is also teaming up with our legend brand restoration company, and they are developing trucks, mobile trucks that are designed to cleaning roofs in less than half the time than a normal contractor would take to clean a roof. So they can actually start coating the roof even before it's completely clean. So, there is a lot of exciting things. One other, I don't want to take too much time, but within the SPHC group of companies one of the company is coming back is called Kop-Coat wood treatment, wood care. And they've developed a product called Tru-Core that a home build -- the residential home build that can actually build a home and guarantee it to be termite free for life. So, there are lot of exciting growth opportunities happening around RPM.

Thank you. That was very helpful. And if I may ask one last question, SPHC revenues went from $300 million to $400 million in revenues over the past four years. If my memory serves me right, EBITDA margin, I believe was around 10%. And I think it is EBITDA as oppose to EBIT, so correct me if I'm wrong. Has that margin improved as well?

Well, we generally don't provide that type of detail. Your recollection is correct. We did provide that when we put the SPHC businesses into bankruptcy. And without providing a specific number I can tell you that your question is correct. Our revenues are now annualized at about $400 million and growing. And their margins over that four-year period have improved.

Okay. Thank you.

And our next question comes from Vincent Andrews from Morgan Stanley.

Good morning.

Good morning. This is Matt Gingrich on for Vincent. I was wondering if you could speak to the significance of your end-market exposure to energy sector, and the likely cadence, your magnitude of any eminent headwinds there.

We have a couple of business units, principally our Carboline business, which is pretty global. That serves the oil and gas industry, weather its petrochemical offshore with corrosion control coatings and fire proofing products and you're seeing a little bit of the impact of that in the third quarter. And we anticipate for the balance of the year, essentially lower sales in that sector as the major global oil players cut back on maintenance spending and idle some capacity. So that is the principle are where we're seeing the negative impact of that.

Sure. And then, on the other side of things, if you could clarify your expectations on oil derived raw materials, and how that might translate to a tailwind going forward? Are you already benefiting from any reduction freight cost or lower commodity like oil derivative products?

Obviously, we're not seeing that in the third quarter. And one comment I would make about the third quarter and all of these percentages or impacts, it's such a seasonally low period that it doesn't take a lot of changes in mix or the FX impact to negatively impact that. We are seeing and expect to see some raw material improvements in the coming months. And I think in a stronger, higher revenue quarter in the fourth quarter you'll see a truer picture of all of that. Freight, as we have commented in the past, for the first time has not really followed the decline in diesel prices as much as you would expect because of regulations around drivers in freight. That's really keeping freight cost higher than historically we would have seen given the decline in oil prices, but I would expect to see some of our business areas improvement in gross margins in the coming months certainly in the fourth quarter.

Great, thanks.

And our next question comes from Jeffrey Zekauskas from JPMorgan.

Good morning, Zelka.

Good morning. How are you?

Good. Thank you.

If you look at SPHC, is that -- was a penny a share dilutive in the quarter and if you stripped out the $8.8 million in charges, would it have been accretive by that $0.04 a share? Would you include interest expense in the dilution calculation as well?

Yeah, I think that you’re on to the right way to think about the quarter. The right way I think about the quarter and I think the right way investor should think about the quarter is to focus on EBIT because there is higher interest expense. There are some big swings in the tax situation. There is the non-controlling interest. So all of that kind of gets confused in the bottom line and I think you’ll see a truer picture all the way down to earnings per share and net income in the fourth quarter and certainly in 2016. And so as you think about EBIT, I think if you want to put pennies per share on the EBIT in the quarter, then I think using that $8.8 million is the right way to think about it. But again I would encourage people to look at our results on an EBIT basis and on that basis both on a consolidated basis adjusted for those onetime costs and in each segment we're doing pretty well and actually really pleased and we've been facing comparable FX rates year-over-year, we’d have a blow out quarter.

Okay. And just to clarify, when you look at SPHC you don’t include interest cost that has to do with the funding of the asbestos trust in those results, right and if you look at SPHC on an EPS basis.

Well, again that’s why I would focus you to look at our industrial segment EBIT and our consumer segment EBIT. It depends on how you want to look at it. Most certainly, one way to look at it and how is how we'll be reporting it in this quarter and in the next quarter and the first half of next year, we’ll treat SPHC reconsolidation for reporting purposes particularly if the revenue level as if it were an acquisition. And the after-tax because these payments are tax deductible, the after-tax net present value by the time we get the tax flows and the benefit of taxes through our P&L over the next 12 or 18 months is somewhere around $485 million. So I think the right way to think about at long term is we paid $485 million to get back a chunk of growing well know $400 million of businesses with expanded margins. And so it’s a little confused there. There is a higher level of debt and we are paying interest on that, but as the year rolls out, we will get much of that back in terms of effectively lowering the net debt through tax deductions.

Okay. I have a question on the consumer presence and I guess I have tax questions, but I leave that for the end, can you discuss the sort of the level of business at your big box retailers through, what you've seen in like February, March beginning of April?

Sure in general we’ve had a very good performance in our consumer segment and we saw a nice start to the spring selling season across all of our big box accounts and a very strong February, which I think is heartening because that’s typically inventory loading for what is anticipated to be a pretty good spring for DIY. And also a return back to normal inventory levels for most of our businesses relative to some inventory issues that we commented on in the second quarter.

And did those trends carry through the March and the beginning of April?

I’m actually talking remotely. So I don’t have access to that data right now, but we expect to have a strong fourth quarter in our consumer businesses.

Okay. And then I have some tax questions, I guess the one thing is when will you make a decision as to whether the foreign funds will be repatriated and when do you actually have to make -- when do you actually have to make the payment like presumably like currently the, $84 million is like non-cash because it's just like an estimated payment on bringing back foreign funds, but presumably that's money that has to be paid of the funds that actually repatriated, when do you think that will happen?

Sure let me have Rusty answer that question and any other tax questions.

Okay, thank you.

Yes, Zelka we have not repatriated those funds nor do we have any timeframe for that. All we did during the third quarter is we concluded that we can no longer assert permanent reinvestment on fund -- for an undistributed earnings for $347.5 million. So there is no timeframe associated with the actual repatriation. We’re just acknowledging the possibility that those funds could be repatriated and when you acknowledge that possibility the triggers under ASC 740-30 to take a charge associated with the deferred income taxes for repatriating those funds.

Okay.

And just to add a point to that Zelka, the actual cash, it's my understanding, the actual cash taxes aren’t triggered until such time as you actually repatriate the funds.

Yeah.

That’s correct. It’s a non-cash charge of a $106 million.

And one last point on that Zelka is that, if that at some point in time in the future, we could then reassert that we won’t have to repatriate. We would be able to reverse the portion to all of that charge.

Okay. And then secondly, can you explain the tax benefit that you may get from funding the asbestos trust and over which period you may realize those benefits? Maybe just like the first 450 that were funded, how does that work? Do you set up an NOL or I wonder if you can explain that?

Sure, there is a couple of pieces to it. The first is that we're able to reduce our estimated U.S. tax payments. So we’ve been doing that and we'll continue to do that for the next few months. The second phase is we’re going to apply for an NOL carry back. We can go back 10 years and apply for basically a refund and we would anticipate the ability to do that within the next, I would say 12 or 15 months.

And just to clarify, did you realize any benefit this quarter already from funding the trust and could you quantify it?

Sure. We have been able to reduce our U.S. estimated tax payments. So we have picked up several million dollars, but we have picked up some benefit. Of course on our cash flow, we’ve had some other things going the other way which have overshadowed some of that benefit but there is more to come.

Okay. I can may be a follow-up from that. I think that’s all I have. Thank you very much.

Thank you.

And the next question comes from Kevin McCarthy from Bank of America Merrill Lynch.

Good morning, Kevin.

Good morning, everyone. Your financial leverage is increased obviously with the trust settlement and yet as I listen to the outlook, you seen to be contemplating acceleration of growth investments and more aggressive returns of capital to holders where appropriate. And so I’m wondering what your outlook would be for your ratio of net debt to EBITDA? Would you expect that ratio to rise or fall in the future or is the current level a new normal or sorts?

Historically we've been able to operate with a BBB investment grade rating and a debt cap ratio that’s kind of range from a low of 40 to a high of approaching 65. And so I think we’re comfortable operating in that range. It will remain our goal as we have stated and delivered in the past to remain investment grade and so we’ll keep that in mind. And I will comment just in terms of some flexibility in our balance sheet. One of our pieces of debt, which is incorporated in the fully diluted earnings per share as a convert and it will either mature as a very nice low fixed rate piece of our capital structure or possibly could be converted into equity, so there is some flexibility there as well. But I would expect us to do what we’ve done in the past and maintain our investment grade rating. I would also expect as the bigger pieces of tax benefit we’re talking about are realized over the next 12 months, you’ll see a reduction in debt and a reduction in that debt cap ratio both from a combination of free cash flow generation and the benefit of the tax yield on the SPHC payments.

Very good and then second question on the consumer side, would you provide an update on Kirker in terms of fundamental trends and also the packaging facility that you’re looking to establish and related permit in New Jersey?

Sure. As we commented in prior quarters, the Kirker business had a very strong year a year ago with some big new customer sell-ins and those have not been repeated this year and so we’re suffering from both a slowdown in their core market, which went from high single digit up organic growth to relatively flat and very difficult comparisons and so we’ve underperformed this year. We expect that to continue for the balance of the year and I think we will be in a position to be more of a full service provider in terms of not only color but for certain customers filling in next year and so I would expect to have a very strong 2016 with our Kirker business both as a result of very easy comparisons and some new capabilities relative to the marketplace and our customers.

Great and then last one for me on the industrial side, is there any material impact from weather in your U.S. roofing business. Anecdotally, you've heard about lot of flat roofs coming under problems with snowfall basically in the North East. Not sure if that’s meaningful for you at the national level and whether there is any knock-on benefit in the balance of the year?

Sure as Rusty commented on earlier, our Tremco roofing business is showing nice results which is after two very challenged years for a number of reasons we committed in the past. The longer winter weather impacted the timing of sales a little bit for Tremco roofing for DryVit and a few other businesses in the industrial sector that these products are used in the exterior. So we would expect strong fourth quarter performance from all of those businesses since we're now enjoying a long awaited spring.

Thank you very much.

Thank you.

And our next question comes from Michael Ritzenthaler from Piper Jaffray.

Good morning.

Yes good morning, thanks for taking my questions. I don’t mean to belabor this point, but on the SPHC and the taxes, wouldn't the right way to think about the valuation on that acquisition or what amounts to be an acquisition be to include some of the repatriation taxes or are those two things are linked or they not?

At the point in time that if and when we would decide to utilize those dollars or those earnings, I suspect the answer to that is yes.

Okay. I think so it's clarifying that for us. And on the industrial business, I’m curious about the portion of business, so the portion of business that has exposure to U.S. commercial and industrial construction, our low double-digit growth expectation is a fair sort of way to look at specifically those end markets and for the remainder of the businesses is flat sales on a constant currency basis the fair assumption for Europe?

I think for the balance of the year, we’ll continue to work hard to generate year-over-year flat sales in Europe both in relationship to double-digit growth we had last year in sales and earnings that we talked about and continued struggling economies over there. The dollar is I think maybe Barry or Rusty can provide some detail on different geography in Latin America if you guys have that, we had a gangbuster quarter in terms of sales growth again and the currency whacked it down a lot and the same is true in Europe. I think I misspoke, in actual rates we were down 16% in Europe but in standard comment rates in local currencies we were just slightly below flat. So that gives you the sense of the magnitude of the FX hit and I don’t think anybody is forecasting another 20% or 25% strengthening in the dollar from where it is. So as we annualize the stronger dollar starting in October, November, that will -- that impact on our results will dissipate.

Sure. That makes sense. Just one last question for me on new products, I guess specifically on the NeverWet OEM application I think we’ve talked about this over the last couple of quarters that there was something in the spring. I’m just curious if there is an update on that per product in particular?

Yes, we're starting to ship our first NeverWet OEM products into a fabric area and it’s a whole new area with a lot of promise and I think we’ll be in a position to provide some more commentary on that in the fourth quarter, when we report that in July. And there is a lot of promise here. I think we need to get in the marketplace on a number of -- with a number of different OEM customers and then see how that works in the future, but it's certainly is an exciting area for Rust-Oleum.

Okay. Thank you.

And our next question comes from Ghansham Panjabi from Robert W. Baird.

Good morning.

Hi good morning this is actually Mehul Dalia, fitting in for Ghansham, how are you doing?

Good.

Great. How are U.S. commercial construction trends relative to few months ago? Has there been an acceleration in activity or more or less the same?

Barry, you want to talk a little bit about what we're seeing in U.S. construction trends?

Yes, we just continue to see a steady improvement not anything robust, but just steady.

Okay. Great and can you talk a little more about the new products that you're introducing in consumer?

Well I…

Go ahead, Barry.

I was just talking about the whole family of new products that came out on the Synta store line where they had originally introduced a 10X which was very thick filled in cracks. They came out with a 4X and a 2X so that gives less damage. These are easier to apply. We’re combining Rust-Oleum and NeverWet for better liquid repelling, water repelling capabilities and Rust-Oleum also has a cool touch. So even if it’s a darker surface those surfaces won’t get hot. Rust-Oleum in this spring is launching a product called SpraySmart. It’s a line marking paint aerosol paint, but it’s using a disposable pouch. So you only need one chargeable canister and you could replace the pouch very quickly and then DAP has a product called SMARTBOND that we’ve been talking about over the last number of months which is an aerosol subfloor adhesive that goes on as a foam and turns to a gel and one aerosol can replace eight cartridges of subfloor adhesive. So that’s just a few of the consumer products.

Okay. Great and just last one from me, can you talk a little more about your M&A pipeline activities, what geographies end markets are attractive to you?

I’m sure we're continuing to pursue acquisitions as we have in the past and they tend to fall into the category of either product lines that we can integrate like a Synta product line where others we’ve commented in the past, or free-standing businesses that where management team very often a second or third generation family member, would stay and run that business as part of one of RPMs groups. And typically we’re looking in $5 million lower end on the product line as small as that. Maybe up to a couple hundred million dollars let’s say $500 million and that’s really our bread and butter. The pipeline is really good. Most of it as we’ve done in the last four or five years has been outside of the U.S. although we certainly are open to transactions in the U.S. as well. And we’re seeing as you might guess in these challenging times and some interesting opportunities in Europe.

Thank you.

And the next question comes from Ivan Marcuse from KeyBanc Capital Markets.

Good morning, Ivan.

Good morning, I just have a couple of quick questions. I may have missed this, but in the -- in your industrial you talked about the energy exposure, about how much percentage of sales or how bigger sales that go into the energy sector relative to the industrial and does demand sort of track with CapEx or is there another way to think about it?

No if Rusty or Barry have a good sense of that question.

I mean roughly 10% to 15% of our industrial sales or probably in some shape or form tied to the energy sector. It’s hard right now to really gauge exactly what the full impact is going to be. So I think we’ll have to comment a little bit later on what the actual impact is.

Great and then Rusty, you talked about the refund in the tax from SPHC, how big could that be? So what sort of how to think about the potential tax or potential cash impact of when you get that refund and the timing?

Sure, yeah I outlined the timing for the initial 450 payment, but the quick answer is that we generate year in year out about a 30% tax rate on average. So if you apply 30% to our consideration of $797 million that would give you a pretty rough answer, but a good answer.

Great. Thanks for taking my questions.

Sure.

And our next question comes from Christopher Perrella from Bloomberg.

Good morning.

Thank you for taking -- good morning. Thank you for taking my call. Could you just give a little more color on the Latin American business? Is that growth coming from your small position and you're grabbing share or has the overall I guess Brazilian construction market perked a bit?

I think it’s a little bit of both. Our manufacturing presence in Latin America has really grown over last decade. So we’ve got a number of facilities and strong presence in Mexico. We’re manufacturing in a strong presence in Columbia and Chile, in Argentina and more recently a very strong presence in Brazil. And so we’re taking market share. The markets we serve ex-Brazil continue to be growing. In Brazil I think we’re performing better than the headline economic data would indicate. And we’re also making some significant investments in Brazil as we look at Leopoldh, which is part of our Euclid Chemical business as really a platform for a number of RPM companies. So we will be making certain industrial coatings there, add mixtures, constructions chemicals, sealants. So the challenge there for us is to stay out of the way of the very good managers of the Leopoldh business who continue to generate positive growth despite some challenges in Brazil economically while at the same time being thoughtful about how we want to expand their manufacturing base into these -- into a number of other RPM product categories.

All right thank you and then just a quick question. Will there be any potential earn out adjustments coming in the fourth quarter here I think there was one last quarter?

Yes, we have remaining earn-out payments on Synta and on Kirker and those are performance related and it just depends on the performance of the businesses. We would comment as we have in the past on those to the extent that there -- that they hitting a material and so we will call any of those out and again they would be fourth quarter or perhaps into next year. Both of those earn outs would be completed between now and the end of FY '16.

Okay. Thank you very much.

Thank you.

And our next question comes from Jason Rodgers from Great Lakes Review.

Good morning.

Good morning. Most of my questions have been answered. I was wondering about the share count and why it fell about $5 million sequentially. Has that to do with the convertible or what the issue is there?

It has to do with the convert and go ahead Berry.

Yeah. We’re showing that basic and diluted shares of roughly $129 million for the quarter versus what would normally be about a $134.8 million shares. The reason is that the as reported results were negative and so if you use the higher share count it actually makes the reported loss lower being that it would be anti-dilutive. So in that situation you will go back to your basic share count. So in the fourth quarter with an income quarter you would see a share count in the 134.5 to 135 range.

I will comment relative to a capital allocation question earlier. Our preference is to fund growth especially good value, continue our dividend program and then look at shareholder buybacks or stocks buybacks. Certainly, we will be more consistent in taking up dilution going forward than we have in the past given the resolution of the SPHC situation.

Alright, sounds good. Is it too early to give estimate for a CapEx for fiscal '16 or the tax rate?

Yeah, I think it’s too early. Historically, we provided guidance for our new fiscal year in our July yearend earnings release and we got a little ahead of ourselves this year just because we felt it was important to provide some detail on the SPHC transaction this fall once it seemed apparent that we were moving in the right direction on that. So we will provide those details in July.

Thanks.

And the next question comes from Kevin Hocevar from Northcoast Research.

Good morning.

Hey, good morning, everybody. Frank, you mentioned that you might see those declining here hitting the P&L in the fourth quarter. I’m wondering if you have any benefits baked into your guidance from price rise or would that represent upside to your assumptions?

I think we have some benefits assumed in there, but if there is a possibility that we could do better than that, I think time will tell and it’s a function of being on FIFO accounting and also as I commented earlier, just a relatively small revenue base of the third quarter. So we do have some baked into the quarter and I think it will be interesting to see whether we realize that or more and it will be interesting to get a sense of what that means for '16.

Okay. Great and just one quick follow-up to that. How has the pricing been with customers? Is the organic growth that you’ve been reporting largely volume and pricing has been relatively flattish or have you noticed some pricing declined associated with raw material declines?

In most of our businesses and both across the consumer and industrial segment. Those organic growth numbers which I think are good indicators of the underlying strength of our business. They were 9.1% consumer and 5.5% in industrial are basically volume not price.

Got you. Okay. Thank you very much.

And the next question comes from Jeff Zekauskas from JPMorgan.

Yes. I was wondering whether I could try like a final tax question.

Rusty, you’re on.

Okay. I’m ready.

Right. So, if you had to -- I know you're not giving fiscal 2016 guidance, but if you had to like throw a dart and get close like the tax rate. Do you think your tax rate is going to below 20% next year or even lower? Because what people are trying to figure out which is what all the questions are, is that if you save 30% on $450 million that you fund that's $135 million. And if you get that all back in one year, that means the taxes would be -- I mean I guess it's just like U.S. taxes, but it means that your tax rate would be, I don't know, very low. Is that how you think about it or that's just wrong way to think about it?

Yeah. What we're talking about is something that would not hit the P&L on the income tax line.

Okay.

When we're talking about getting a tax benefit on the $797 million SPHC settlement that tax benefit would not flow through. You should think about that instead as a tax receivable where we would get a cash benefit, but it would not impact the P&L.

Okay.

So, it's part of the opening balance sheet, if you will. And again, it's been interesting accounting, because it's reconsolidation accounting. It feels like purchase accounting. So it's part of the opening balance sheet. There is a tax item that where this would flow through Silka.

But…

But not hit the P&L.

Okay. I understand. But what you'll hope to do is to recover something like $130 million next year.

Yes. We were hoping to recover a significant amount of cash flow through this tax shield, which all things being equal, would be used to reduce debt and bring our debt cap ratio down. That's correct.

Okay. Thanks for clarifying.

And our next question comes from Richard O'Reilly from Revere Associates.

Good morning. Richard O'Reilly: Good morning, and thank you, guys. Two quick questions. The first on the consumer business, the organic growth of 9%. That compares with a slight decline a year ago. Do you think the 9% is real, or is it something in between the two numbers? What should we be thinking about the consumer segment?

I think the 9% is in part in relationship to the very difficult winter we had last year, and some strong quarter-end sales into our major accounts. And I think we're seeing good results, but I would be more than pleasantly surprised if we were that strong in organic growth in the fourth quarter and so, we're going to have good results. But I think your question is a fair one. And between not growing last year and plus 9%, we'll be somewhere between those numbers. It's hard to say which, but I think your question is -- your assumption is correct. Richard O'Reilly: Okay. Second one, the third quarter had a lot of one-time items and noise in it, and you came up $0.20. Do you have a feel for what normalized earnings should have been? Because if we just add back the $8.8 million, it would imply like $0.30 a share, but then that tax benefit would probably become an expense. Have you guys thought about that?

Well, the best way that I think about it as RPM's CEO, and I think the way that investors should think about it, I had commented on earlier, which is I think you need to look at our consolidated and our segment EBIT. Because there is so much noise below the line with all these tax issues and the anti-dilutive impact on earnings per share that Rusty talked -- that Barry talked about. So, again, if you adjust out the $8.8 million of one-time expenses for SPHC in reconsolidation, $5 million of that was in industrial gross profit, and $3.8 million was in corporate, other expense. You come out with a 9.6% sales growth on the quarter, driving in adjusted for those items, 15.6% EBIT. The consumer EBIT is, as it's been reported, and again you would adjust out $5 million of a gross margin hit on industrial EBIT. And that's where you'll see the biggest negative. So you've got a decent sales growth in industrial, 5.5% of which is organic. And that really only levered EBIT growth up about 2%, 2.5% on an adjusted basis, and that's because of what's happening to us in Europe and what's happening with foreign exchange, both of which are much more pronounced in our industrial segment than in consumer. Richard O'Reilly: Okay. And that if we just assume a tax rate of something in the low 30s to go with those numbers, to work out something on our own, right?

I think that would be right. Again, it's our expectation that on a full-year basis our tax rate will approximate around 28%, which is about where we were last year. Richard O'Reilly: Okay. Good. Okay. Thanks a lot for those answers.

Thank you.

And our final question is from John McNulty from Credit Suisse.

Yes. Good morning. Sorry, just a two quick items. On the part of your business that's exposed to energy and industrial I think you'd said it was 10% to 15%, is that total energy or is that just upstream oil drilling type energy?

I believe that's total energy as we think about it, it's offshore, it's petrochemical and it's fracking. The other areas that we're in are certainly energy, but not as impactful as those areas I'd mentioned. That included coatings for windmill blades and a few other energy areas. But it's really petrochemical cracking, refining offshore exploration and fracking.

Got it. Okay. And then just one last question. On the, I guess, potential to repatriate the cash to the U.S., I mean it looks like you've got enough U.S. EBITDA to cover kind of any interest expense you've got and then some. So, I guess, I'm wondering what would drive you to do that. Is it opportunistic, whether its M&A or buyback opportunities; or I guess why do you feel the need to necessarily repatriate the cash back to the U.S.?

I believe it provides us flexibility in how we would meet these future payments. And I commented on the flexibility in our balance sheet, we've got plenty of it. We've got to convert. It’s part of those fully diluted EPS numbers. We actually have the ability to meet these future payments with stock instead of cash. And it's my understanding. I'm not a tax expert, but it's my understanding that if we met those future payments with stock, any portion of them then that would be considered U.S. It wouldn't be repatriated. And so, it just provides us flexibility as we think about the future and funding. And I think Rusty covered the technical reason as to having come to that conclusion why we had to take that charge now.

Okay. Fair enough. Thanks very much.

Excellent.

And we have no further questions at this time.

Sylvia, thank you very much. And thank you to everybody for being on our call this morning. As I said back in January from a long-term perspective, we cannot be more excited about RPM's future. The return of the SPHC businesses bring a number of well-run strong, U.S.-base business back into the fold of RPM and marks the permanent resolution of the Bondex asbestos liability drain on cash flow and management's time and attention over the last decade. Obviously, this leaves us very excited about an opportunity in the coming years to supplement our growth investments and to more aggressively return capital to shareholders when appropriate. We look forward to providing you the results of our fourth quarter and our FY '15 full-year when we release those in July and also to commenting about our 2016 fiscal year. Thank you for your participation on the call today, and have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.